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MSN MoneyCentral - Paulson & Co, a prominent New York hedge fund, will weigh buying shares or convertible bonds in banks and other financial institutions that need capital, the Financial Times reported on its website on Sunday.

John Paulson, its founder, remained bearish on the economy and the financial sector, but would consider taking positions in the sector as prices fall to his target levels, the paper reported, citing two unnamed investors who were on a Paulson conference call for clients last week.

Paulson is to launch its Recovery fund on October 1, the paper said.

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Bloomberg - Royal Bank of Scotland Group Plc led gains for European banking stocks on speculation that demand for its rights offer is strong and a U.K. hedge fund is buying shares to push for a breakup.

Edinburgh-based RBS, Britain’s second-biggest bank, rose 8.3 percent to 244.75 pence in London trading. Investors are speculating that the bank’s 12 billion-pound ($23.6 billion) rights offering is succeeding and that hedge fund TCI Fund Management LLP is building a position, said MF Global Securities Ltd. analyst Simon Maughan.

“The rumor in the market is that TCI is taking a stake of about 1 percent and is agitating for a breakup of Royal Bank,” said Maughan, who has a “sell” rating on the stock. “They’ve made a series of strategic errors,” and shareholders would gain if RBS’s investment bank were split off, he said.

RBS is raising cash and selling assets to shore up capital depleted by the acquisition of ABN Amro Holding NV and credit- related writedowns. It declined to comment on TCI, the London- based hedge fund that helped trigger the sale of ABN Amro, or investor response to the offering, which closes June 6 and is underwritten by Goldman Sachs, Merrill Lynch & Co. and UBS AG.

RBS is offering 11 new shares at 200 pence apiece for every 18 existing shares to help lift its capital ratios. It also is trying to sell its insurance arm for about 7 billion pounds as well as its Angel Trains Ltd. railway leasing company and consumer-banking operations in Australia and New Zealand.

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